UPDATED with response from Chesapeake below.
The state attorney general’s office has reached a deal to settle a legal dispute concerning thousands of natural-gas leases across the state.
Chesapeake Energy has agreed to allow landowners to renegotiate the terms of 4,365 mineral rights leases and release 50 others under the settlement, which was obtained Thursday by Gannett’s Albany Bureau. The leases total 264,183 acres.
The company will also pay the state $250,000 to cover the cost of the state’s investigation, according to the agreement.
“Make no mistake about it – this agreement will provide a safety net for thousands of landowners by allowing them the opportunity to negotiate fairer lease terms, both financial and environmental, regardless of their existing contracts,” Attorney General Eric Schneiderman said in a statement.
The company had attempted in 2009 to extend the terms of the leases—many of which were in Tioga and Broome counties—by claiming “force majeure,” a clause found in many contracts that allows for an extension if an “act of God” or unforeseen circumstance disrupts the agreement.
Chesapeake had claimed New York’s de facto moratorium on high-volume hydraulic fracturing had constituted a “force majeure” event. Many landowners disagreed, with a handful of Broome County residents taking the company to court before the case was decided on a separate issue.
The attorney general’s inquiry began in 2009, shortly after receiving complaints from landowners.
The leases, which were signed in the mid-1990s to the early 2000s, were prior to the proliferation of high-volume hydrofracking, a much-debated gas-drilling process that made formations such as the Marcellus Shale profitable. As such, the terms of the contracts are generally well under current market value.
In a statement, Chesapeake stressed that it “admits no wrong-doing” in the settlement and that the payment to the state was a reimbursement, “not any sanction or penalty.”
“We look forward to the day when safe and responsible drilling will be allowed in New York and all residents can benefit from this valuable natural resource,” the company’s statement reads. “When that occurs, New York will be able to compete for investment with other shale producing states and all residents will have the opportunity to benefit from this clean, abundant natural resource.”
High-volume, horizontal hydrofracking is on hold in New York until the state completes an environmental and regulatory review of the technique. It’s expected to be finalized at some point this year. Vertical hydrofracking, however, is permitted in the state.
Under the settlement, Chesapeake didn’t admit or deny any wrongdoing.
Those landowners granted the right to renegotiate would be able to come to a deal with another gas company for better financial or environmental terms. Chesapeake would then have the opportunity to match the offer or release the lease.
An additional 1,865 leases totaling 96,524 acres contain a clause allowing Chesapeake the opportunity to extend their current terms under certain conditions.
The deal, however, does not include the company’s leases to 15,472 acres of state-owned gas rights, which were signed in 2006. Those leases were set to expire on Nov. 15 before Chesapeake attempted to extend them last year; the settlement calls for them to be “handled as a separate matter.”
Chesapeake’s full statement can be read after the jump:
“Chesapeake Appalachia, LLC confirms it has reached an agreement with the New York Attorney General’s office concerning a number of its leases in New York State. The subject leases have been under Chesapeake’s claim of force majeure and other claims for extension arising from directives and Executive Orders, prohibiting the issuance of permits to drill and complete horizontal Marcellus Shale wells in the State of New York pending the completion of an environmental impact study being performed by New York’s Department of Environmental Conservation since 2008.
In the settlement, Chesapeake admits to no wrong-doing and the amount to be paid represents reimbursement for the Attorney General’s time and expenses in investigating this matter, not any sanction or penalty. It is unfortunate that we have been in this situation in New York since 2008, where landowners and their mineral lessees have been unable to develop mineral rights in the Southern Tier despite a robust drilling program being undertaken in neighboring Pennsylvania.
We look forward to the day when safe and responsible drilling will be allowed in New York and all residents can benefit from this valuable natural resource. When that occurs, New York will be able to compete for investment with other shale producing states and all residents will have the opportunity to benefit from this clean, abundant natural resource.”